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Stock market and economic growth in selected Asian countries

  • Tang, Hong Peng
  • Habibullah, Muzafar Shah
  • Puah, Chin-Hong

This study investigates the relationship between stock markets and economic growth in twelve Asian countries from 1980 to 2004. In this study, we utilize the Johansen cointegration and Granger causality tests using quarterly data. Results from cointegration test suggest that there is long run relationship between stock markets and economic growth in four countries namely, China, the Philippines, Singapore and Taiwan. The results of Granger causality test indicate that there is a bi-directional feedback relationship between stock markets and economic growth in China, Hong Kong, Indonesia, Malaysia and Thailand. Whereas in Japan and Korea, we found that there exists a unidirectional short run causal effect running from stock markets to economic growth. On the contrary, we found short run causal effect running from economic growth to stock markets in the case of India and Singapore. In addition, there is no evidence of causality among the variables under study in Sri Lanka.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37649.

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Date of creation: 2007
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Handle: RePEc:pra:mprapa:37649
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  1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  2. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, vol. 32(5), pages 1167-1183, June.
  3. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
  4. Singh, Ajit, 1996. "Financial liberalisation,stockmarkets and economic development," MPRA Paper 53897, University Library of Munich, Germany.
  5. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
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  7. Singh, A. & Weisse, B. A., 1998. "Emerging Stock Markets, Portfolio Capital Flows and Long-term Economic Growth: Micro and Macroeconomic Perspectives," Accounting and Finance Discussion Papers 98-af40, Faculty of Economics, University of Cambridge.
  8. Chee Keong Choong & Zulkornain Yusop & Siong Hook Law & Venus Liew Khim Sen, 2003. "Financial Development and Economic Growth in Malaysia: The Stock Market Perspective," Macroeconomics 0307010, EconWPA.
  9. Levine, Ross, 1991. " Stock Markets, Growth, and Tax Policy," Journal of Finance, American Finance Association, vol. 46(4), pages 1445-65, September.
  10. Bencivenga, Valerie R & Smith, Bruce D & Starr, Ross M, 1996. "Equity Markets, Transactions Costs, and Capital Accumulation: An Illustration," World Bank Economic Review, World Bank Group, vol. 10(2), pages 241-65, May.
  11. Guglielmo Maria Caporale & Peter Howells & Alaa M. Soliman, 2005. "Endogenous Growth Models and Stock Market Development: Evidence from Four Countries," Review of Development Economics, Wiley Blackwell, vol. 9(2), pages 166-176, 05.
  12. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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